IMF cuts forecasts, business as usual. The IMF downgrading its global economic forecasts isn’t anything new — in fact it’s now standard operating procedure. Set the forecast in a January estimate, then recast it in the spring World Economic Outlook (WEO), revisit it in July, and again in the autumn WEO. The IMF believes the world economy will grow at 3.1% this year and by 3.6% in 2016. They are cuts of 0.2% from the July forecast and 0.4% and 0.2% under the spring WEO forecasts In April. The US economy is expected to grow by 2.6% this year and 2.8% in 2016, the eurozone is forecast to grow by 1.5% and 1.6% respectively, and Japan by just 0.6% and 1.0%. Significantly, the IMF hasn’t joined the ranks of the Hennies Penny about China and even though it sees Chinese growth slowing to 6.8% and 6.3% next year. Those forecasts are unchanged, a small positive nod for the world’s most important economy. Australia is forecast to grow by 2.4% this year. — Glenn Dyer
IMF black holes. In cosmology, black holes consume matter and nothing escapes (well possibly something called Hawking radiation, a brief glimmer of matter). In economics, black holes are economies contracting. They blink (quasar-like) off and on like Japan for much of the past three decades, the eurozone — three times since the GFC (and includes the UK with its two) — and the US with its Great Recession. But there are a collection of economic black holes that are in a special class, resulting from war, wilful incompetence, greed, cupidity or a collection of all of these factors. So in its latest WEO, the IMF sees Venezuela’s economy shrinking 10% this year and another 6% in 2016. Blame dud economic policies, incompetent governance and falling oil prices, but inflation will jump 159% this year.
The fact that Venezuela has the world’s largest oil reserves (much of it very heavy oil and oil sands) hasn’t saved it from slumping. It beat Ukraine (with its continuing war with the Russian-backed separatists), which is forecast to contract by 9% this year. Russia will be an overachiever by comparison — its economy will shrink by 3.8%, Brazil by 3% (and the most significant contraction around the world, with a fall of 1.0% forecast for 2016). Greece, most people’s favourite for the black hole of the year, is forecast to contract by 2.3% this year and 1.3% next year. Yemen is probably the biggest disaster area with the continuing fighting forecast to shrink the economy by 28% this year, but it has no importance as an economy, unlike Venezuela and its huge oil reserves. Libya, with its oil reserves, is forecast to contract by 6% this year, and grow 2.0% next year, which reads like a wet-finger-in-the-wind guess. — Glenn Dyer
Westpac softens up investors. Westpac reports its 2014-15 profit on November 2 and the report will contain more than half a billion in pre-tax one-off losses on the costs of its big technology push revealed in its new strategy update on September 7. As a result the bank will be spending more on technology, software and training, and this will have an impact on earnings — sort of. The bank says the write-downs will be taken as a non-recurring item before tax and will be excluded from the key measure, cash earnings. The bank said there will be “a reduction in the capitalised software balance of $505 million (pre-tax)” and “the Full Year 2015 software amortisation cash earnings expense is expected to be approximately $570 million”. Westpac warned that the November 2 report would include a number of non-recurring items.These include the gain on the partial sale of Westpac’s holding in Bankers Trust Investment management of $665 million (post tax), and the $354 million (post tax) impact of the reduction to capitalised software balances. This is all about softening up the market ahead of the release of the results so that investors don’t baulk at what would normally be surprising losses, even though they are being classified as abnormal or one-off items. — Glenn Dyer
Strange days indeed. For the first time ever, US Treasury securities sold this week at auction for no yield. The US Treasury auctioned US$21 billion or three month T Bills on Monday night, our time, and they went with a 0% yield. That means the holders of these bonds are prepared to lend the US government US$21 billion for the next three months and receive no return whatsoever, despite the US debt ceiling up for renewal around November 5. It was more last Friday’s weak jobs report that drove demand at the auction, but still, the absence of a yield was a shock. It’s not new for an advanced country’s government to raise funds at no yield, or negative yields. Germany has done it, Denmark, Sweden, Finland, France, Switzerland, Finland have all done that. According to Bloomberg, three month T bills were trading at a negative yield of 0.1% overnight. And to think that these same type of bills carried yields of around 4% before the GFC. Until Monday the record low yield was 0.0050%, according to Bloomberg. Market reports say the result of the auction came as a complete shock, with no ready explanation, except the suggest that the Fed won’t be raising rates anytime soon. — Glenn Dyer